Best Student Loan Options for First-Time Borrowers

BIG Ideas:

• Student loan options include federal loans from the government and private loans from banks, nonprofits, and other non-government lenders. 
• Explore grants, scholarships, and federal financial aid before applying for private student loan options. 
• Compare interest rates, loan types, fees, and repayment options before choosing a private student loan.

When it comes to planning for college, you have lots of important decisions to make – from the type of school you want, to the location, to your field of study. 

It’s all very exciting. 

One decision that may not be as exciting is how you’ll pay for college. Unless you have money set aside specifically for college, you’ll likely have to do what a lot of students do to afford college – take out student loans for first-time borrowers. 

You won’t be alone if you do. According to Education Data Initiative, 42.7 million people have outstanding student loans. 

If you’re exploring first time student loans, chances are you have a lot of questions. That’s why we’re here – to help you understand student loans for first-time borrowers. 

So, if you’re ready to get answers to help guide you along on your exciting college journey, read on for the most common questions about student loan options. 

What student loan options are available for first-time borrowers?

There are essentially two types of student loan options: federal loans and private loans. Federal loans are offered by the U.S. government, while private loans are offered by banks, credit unions, and non-profit lenders like Brazos. 

Let’s unpack each option and how they differ: 

Federal student loans 

To qualify for a federal student loan, you must complete the Free Application for Federal Student Aid or the FAFSA as it’s often referred to. In addition to determining if you qualify for financial aid to make college costs more manageable like grants and Work-Study, the FAFSA can help you get federal student loans. There are two types of federal student loan options for students:

• Direct Subsidized Loans. If you demonstrate financial need, you may qualify for this federal loan where the government pays your interest while you’re in school, during the grace period (often six months after graduation), and during periods of deferment. Because the government foots the bill for interest, you’ll end up paying less interest over the life of the loan. 
• Direct Unsubsidized Loans. These federal loans are available to undergraduate students regardless of financial need. And unlike subsidized loans, the student is responsible for paying interest, which will accrue as soon as the loan funds are disbursed. 

Federal student loan options for parents

If you’re a parent of an undergraduate student looking to borrow to help with college costs, you could apply for a Parent PLUS Loan. It can help cover college costs after other financial aid has been exhausted. With a Parent PLUS Loan, eligibility is based on the parent’s credit history, and the parent – not the student – is responsible for repaying the loan. 

How much can you borrow with federal student loans? 

Federal student loans are subject to annual and aggregate borrowing limits based on:

• year in school
• dependency status
• type of federal loan

If your federal borrowing limits don’t cover your remaining educational expenses, private student loans may help bridge the gap.

Before considering private student loans, it’s wise to explore all available federal financial aid first, since grants, scholarships, and federal student loans can help reduce what you need to borrow through a private lender. 

What if financial aid, savings, and loans don’t cover the full cost of college?

It’s not uncommon for families to discover that scholarships, grants, savings, and federal student loans don’t cover the full cost of attendance. In those cases, private student loans can help bridge the gap to meet the cost of attendance. 

There are essentially two types of private student loans:

• Private student loans from for-profit lenders. This includes banks and other for-profit non-government entities. 
• Private student loans from mission-driven, non-profit lenders. Some non-profit lenders are mission-driven organizations that help make college more affordable by offering competitive rates, fewer fees, and other benefits. Brazos is proud to be one of these non-profit lenders. 

If you determine you do need a private student loan, there are some important things you should know: 

• Unlike federal student loans, interest rates and loan types (fixed or variable interest rates) are determined by each private lender rather than the government. So, private loans can vary significantly from lender to lender.
• Private student loans are based on the borrower’s creditworthiness and, in many cases, income rather than financial need. Borrowers who have strong credit and income may qualify for a lower rate. 
• The borrower can be a student or parent. However, if a student doesn’t have strong credit or income, they may need to apply with a co-signer who does. 

Do all private student loan options offer the same features and benefits? 

In general, private student loans don’t offer all the same borrower protections available with federal loans, such as income-driven repayment, deferment, and forbearance, and loan forgiveness. But again, mission-driven lenders may offer added benefits. At Brazos, for example, we offer competitive rates, no fees, and flexible repayment terms. We also offer a co-signer release for students who make a certain number of consecutive, on-time loan payments. 

What can you do to be a smart borrower?

As you can see, there are several student loan options available to first-time borrowers to help make college possible and more affordable. But because the money you borrow will need to be paid back with interest, it’s wise to borrow wisely. Here are some tips to help you:

• Exhaust all federal aid first. Grants and work-study can help you reduce the cost of college. And federal student loans often offer competitive fixed rates and borrower protections that private loans may not provide. In addition, federal loans typically include a six-month grace period after leaving school, while repayment options may vary for private loans.
• Apply for other scholarships and grants – free money! Many organizations offer scholarships and grants based on academics, activities, or field of study. Get tips for finding scholarships.
• Shop around for private student loan options. Not all private lenders are created equal. Be sure to compare interest rates, rate type (fixed or variable), fees, repayment options, hardship assistance, and if they offer co-signer release. 
• Avoid overborrowing. Lenders may let you borrow up to the school’s cost of attendance but that doesn’t mean you need to borrow that much. Remember that every dollar you borrow must be repaid with interest, so borrowing only what you truly need can save you money. 
• Find ways to lower college costs. Consider having the student become an RA, commuting for the first year or two, or even attending a community college and then transferring to a four-year school. 

So, whether you’re applying for federal aid or shopping for private lenders, understanding your federal student loan options and comparing private student loan options can help you borrow with confidence and avoid taking on more debt than you need.

Brazos has private loans to help make college affordable

For more than 40 years, Brazos Higher Education has offered private student loan options for first-time borrowers to help make college more affordable. As a Texas nonprofit, we offer competitive rates and no fees to help parents and students save BIG. Contact us today to learn more.